Is Vendor Management Easier Done Than Said? Ari Karen Strategic Compliance Partners November 20, 2017

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1 Is Vendor Management Easier Done Than Said? Ari Karen Strategic Compliance Partners November 20, 2017

2 Vendor Management Today There are no official rules or standards Most cases involving third party due diligence focus on lack of objective reasonableness Focus in most instances is to avoid placing clients in harm's way Utilize reasonableness standard to ensure appropriate vendors Not looking for or expecting inquiries that guarantee safety

3 What is Expected Sprint/Verizon failed to monitor third parties allowed to submit charges to phone bill; disregarded consumer complaints; disregarded other red flags; system provided little oversight Intercept Corporation turned blind eye towards obvious fraud by its clients; ignored high numbers of returned payments and inaccurate account info; ignored complaints from banks and customers T3Leads promised to match consumers to lenders but made no assessment of lenders in its network; made no assessment of whether lenders complied with consumer laws

4 Guidance is Lacking Relies upon FDIC guidance which by definition will include publicly traded companies for which practical and actual considerations entirely different Very little specific guidance or rules applicable to Community Lenders Common sense should rule the day

5 Knew or Should Have Known? No published standard CFPB expects lenders to take reasonable steps so that they are in a position to detect wrongful conduct Cases have focused on situations where obvious signs are ignored and there are complaints from consumers There is no requirement that lenders guarantee or ensure that third parties act properly

6 Goals of a Vendor Management System Objective reasonableness of scope of review Discovering that which you should know Expediency and lack of unnecessarily invasive reviews Strategic consideration of what is asked for and why Ongoing and continuous monitoring Least burdensome means of quickly and satisfactorily executing a plan reasonably aimed at detecting vendors who pose risks

7 Vendor Management Considerations When is it enough? When is it too much? How often is enough? How should I decide what to collect? What should I review? How should I decide? Should I rely on third parties to decide? 2017 Strategic Compliance Partners. All rights reserved.

8 Enough vs. Too Much Overkill is a significant problem slows down vendor acceptance and participation unnecessarily creates vacuum of information forces lender to make decisions without information it asked for asking for information you don t need slows down process asking unneeded information ultimately creates gaps

9 Three Tiers Inherent problem cannot ask relevant questions for all vendors based on only 3 questionnaires will include irrelevant information will exclude industry specific relevant questions will seek information vendors wont provide Instead of risk-tiering make industry specific questionnaires that inherently incorporate risk profiling

10 Relying on a Vendor s Representations? Better question - What do you have to do beyond taking their word for it? Asking for policies? Reviewing policies? Why ask for something if you are not going to review it? If you are reviewing it, are you qualified? Spot checking for specific requirements is often better What actions in addition to questioning are necessary

11 Who is Vendor? Considerations Is there existing government oversight? What are my options if they will not cooperate? How legitimate are the risks to my business/clients? Do I control the relationship or does the borrower? Am I making a decision on a vendor for the borrower? Am I making a decision on a vendor for the business?

12 Questions to Ask Is it relevant to this business? Is it unnecessarily invasive? If I am not going to ask the question, can I support that decision? Strategy: It may be better not to categorically ask for information then be in a situation where no one will provide it and you will not collect it anyhow Recommendation: Questionnaires by industry are inherently superior

13 How Often Should You Update Information Problem with deep level inquiries is that they take too long and cannot be maintained up to date No matter how good and how deep the diligence, it is useless if not current Cost and time considerations

14 Who Decides? Vendor management companies have to be conservative and evaluate risk far ahead of reward Vendor management companies make decisions based on their risk not yours Consider solutions that truly put you in charge as opposed to putting you at risk

15 Breadth vs. Depth Many systems take deep dives but fail ongoing review Interim events can become problems Ongoing requirement is critical Unneeded scrutiny is expensive, time consuming, and counterproductive Can interfere with relationships Creates holes in the review If you ask for it presumes you needed it

16 Breadth Not looking for guarantee Is there information reasonably available which suggests... Want it to be fast, efficient, not overly invasive Ask for what you need and nothing else Ensure information is made and kept up to date and reinforced through independent corroboration

17 ShareDiligence Vendor Management SCP initiates attorney drafted industry specific questionnaires tailored to type of vendor and risk SCP requests updates from vendors throughout the year Answers instantly disseminated across all lenders SCP preserves lender s ability to select without risk SCP performs ongoing social media search Lenders communicate incidents Fully automated 4 color simple Instant results for existing vendors Adding new vendors as simple as typing an address Nature of cooperative due diligence creates inherent benefits of credibility and legal legitimacy

18 Special Offer for You Enroll in ShareDiligence before January 1, 2018 Receive an additional 5% off TMC member pricing Contact Leslie Benjamin for a demo LBenjamin@StrategicCompliancePartners.com

19 Questions? Ari Karen

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